{"id":21931,"date":"2013-08-29T09:37:47","date_gmt":"2013-08-29T13:37:47","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=21931"},"modified":"2013-08-29T09:38:02","modified_gmt":"2013-08-29T13:38:02","slug":"dont-drink-the-froth-in-tesla-and-netflixs-cups","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2013\/08\/dont-drink-the-froth-in-tesla-and-netflixs-cups\/","title":{"rendered":"Don't Drink The Froth In Tesla And Netflix's Cups"},"content":{"rendered":"

On Monday, the markets started the day with such promise only to have significant gains erased in seconds late in the day. One could assign blame on the Syria related press conference or just good old-fashioned profit taking.<\/p>\n

The froth fizzles first and fastest...<\/b><\/p>\n

Monday, traders saw how premiums come out fastest out of the frothy tickers. Two cases in point consider. First, Tesla <\/b>(NASDAQ: TSLA<\/a>): The stock opened up with the markets then at about 1:00 pm E.S.T the markets started the afternoon slide.<\/p>\n

Tesla\u00a0didn't even wait to see how shallow will the pullback be. The stock sold off all the way down to 160 and closed just above that and way off the day high. Similarly, traders saw almost exactly the same price action from another frothy name Netflix <\/b>(NASDAQ: NFLX<\/a>).<\/p>\n

Here too one can see that the selloff in Netflix coincided almost exactly with the start of the afternoon market slide (See charts below where the \/ES is above TSLA and NFLX)<\/p>\n

 <\/p>\n

Froth Fizzles First and Fastest at the First Sign of Trouble<\/p>\n

\"\"<\/p>\n

\u00a0<\/b><\/p>\n

Value holds up better...<\/b><\/p>\n

Conversely, days like today highlight the importance of buying value. Consider the price action of two stocks whose prices are not in the proverbial stratosphere: Goldman Sachs<\/b> (NYSE: GS<\/a>) and Home Depot<\/b> (NYSE: HD<\/a>). The charts below will show that the stocks actually tried to linger at the first trouble zone before they finally declined to close lower.<\/p>\n

Unlike the two previous examples of momentum stocks that let go at the first hint of trouble.<\/p>\n

 <\/p>\n

Value Holds Up Better then Momentum Stocks<\/p>\n

\"\"<\/p>\n

Don't drink the froth...<\/b> It is true that these four aforementioned examples are based on one day's intraday price action. But, this will translate and hold up for mid and long term trades.<\/p>\n

If traders go long frothy tickers at frothy levels they would be buying shares from the smart money who has been manning the dispenser and been riding the froth up and now are cashing in their profits.<\/p>\n

In today's super fast trading environments where information spreads in milliseconds, unless traders are in on a frothy run BEFORE getting frothy then they are buying too late.<\/p>\n

Nicolas Chahine<\/b> is a former CFO for a successful web startup. He now manages his own fund, which is built around his credit-spread trading strategy. He is the mind behind the \u201cMastering Credit Spreads<\/i><\/b><\/a>\u201d online course and \u201cCreate Income with Credit Spreads<\/i><\/b><\/a>\u201d newsletter on Marketfy.com<\/b>.<\/p>\n

Nic\u2019s offering to buy half the cost of your first month\u2019s <\/b>subscription of <\/i>\u201cCreate Income With Option Spreads\u201d <\/i><\/b>newsletter<\/i><\/a>. He\u2019s that confident! <\/i>Click here to learn more!<\/i><\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

On Monday, the markets started the day with such promise only to have significant gains erased in seconds late in the day. One could assign blame on the Syria related press conference or just good old-fashioned profit taking. The froth fizzles first and fastest... Monday, traders saw how premiums come out fastest out of the […]<\/p>\n","protected":false},"author":35,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[4076,5505,7948,5451,5500],"class_list":["post-21931","post","type-post","status-publish","format-standard","hentry","category-general","tag-benzinga","tag-froth","tag-guest-bloggers","tag-netflix-nasdaqnflx","tag-tesla-nasdaqtsla"],"yoast_head":"\nDon't Drink The Froth In Tesla And Netflix's Cups - INO.com Trader's Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2013\/08\/dont-drink-the-froth-in-tesla-and-netflixs-cups\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Don't Drink The Froth In Tesla And Netflix's Cups - INO.com Trader's Blog\" \/>\n<meta property=\"og:description\" content=\"On Monday, the markets started the day with such promise only to have significant gains erased in seconds late in the day. 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